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Archive for John Stancil

Beware The “Federal Student Tax”

John Stancil

Scammers are currently targeting students and parents, posing as the IRS and calling to collect payment of the non-existent “Federal Student Tax.” Callers are demanding immediate payment and if refused, threaten to report the student to the police. As this is merely an attempt to separate you from your money, your best response is to hang up. There is no such tax, and the IRS does not utilize such collection methods.

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What Can Be Deducted As Home Mortgage Interest?

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This is the second in a four-part series on home mortgages. (Click here to read Part 1 – The Home Mortgage Interest Deduction) We will examine what can be deducted as home mortgage interest. Interest on the debt is deductible up to the statutory limits on the amounts of deductible debt ($1,000,000 for acquisition debt, $100,000 for home equity debt). Interest on excess debt is personal debt and not deductible. In addition, any amount of home equity or refinanced debt that is not used build, buy, or improve the residence is also classified as non-deductible personal debt.

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The Home Mortgage Interest Deduction

John Stancil

This is the first in a four-part series about home mortgage interest. One would think that deducting home mortgage interest on your taxes would be a simple, straightforward process. And for most taxpayers, it is. You get your 1098, enter the amount of interest shown on the form, and proceed to the next item. For others, the situation may not be quite so simple.

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Start-up And Organization Costs

John Stancil

When starting a business, the owners are likely to incur two classes of costs that are not normally encountered in the ongoing operations of the business and should not be included as operating expenses. These are start-up expenditures and organization costs. Each of these are specifically defined and receive special tax treatment.

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Vacation Homes and Other Short-Term Rentals

John Stancil

This is the final article in a five-part series on Passive Activities. (To read the previous articles, click the following links: Part 1, Part 2, Part 3, and Part 4.)

You own a beach cottage or a mountain cabin. As much as you would like to live there year-round, it just is not practical, so you rent it out when you are not using it. Is this taxable income? Can you deduct a loss? As with so much in taxes, the short answer is “it depends.”

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Disposition Of Passive Activity Property

John Stancil

This is part 4 of 5 in a series on Passive Activities. You can read the previous articles here: Part 1, Part 2, and Part 3.

Nothing, it seems, lasts forever, and it is likely there will come a time when you will dispose of your passive rental activity. When this occurs, there are a number of issues that arise. What happens to those suspended losses that were previously denied? What is adjusted basis? What is depreciation recapture? Is there a profit or a loss on the sale? How much tax will I pay?

We will attempt to clarify these issues in this article.

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Real Estate Professionals And Passive Losses

John Stancil

This is part 3 of 5 in a series on Passive Activities (see Part 1 and Part 2).

Passive loss rules do not apply to real estate professionals. However, the rules for who is a real estate professional for tax purposes are rather specific and the IRS enforces these rules rather strictly. If one is classified as a real estate professional, any losses are treated as ordinary losses and may be deducted against other income sources. Gains are taxed at ordinary income rates, however, income from rental activities is not subject to self-employment tax. However, rent is one of the categories of income that is subject to the Net Investment Income Tax, so there may be an additional 3.8% tax on these profits.

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Passive Activities—Material Participation

John Stancil

This is part 2 of 5 in a series on Passive Activities. (Read Part 1 here)

Prior to the Tax Reform Act of 1986 (TRA), taxpayers were allowed to deduct non-economic losses from passive activities from wage and investment income. Thus, the infamous term “tax shelter” was commonly used in tax planning. However, in the TRA, tax shelters went the way of income averaging and ACRS depreciation, along with other now defunct aspects of our tax code. While the law did not ban such activities, it severely restricted taxpayers’ ability to deduct losses from what is termed “passive activities.”

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Passive Activities—What Is A Rental Activity?

John Stancil

This is part 1 of 5 in a series on Passive Activities.

Many things can be classified as rental activities. You rent a car; you book a hotel room; you lease an office machine; you pay for a parking space. All of these fall under the broad category of being rental activities. However, there is a more limited definition of a rental activity for passive loss purposes. If a rental activity is not considered passive, it is treated as a business.

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Avoid A Tax Surprise On April 15

John Stancil

I recall the first year my wife and I filed a joint return. I was a graduate student with a part-time job. She was fresh out of nursing school and employed at a local hospital. When we prepared our tax return, we owed $400. That was a lot of money in 1970, especially for people in our situation. What happened? We were victims of having multiple sources of income between the two of us and did not have the correct amounts withheld from our incomes.

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Misguided Thinking in Washington—Tax Exempt Status

John Stancil

Utah Senator Orrin Hatch (R) recently sent a letter to IRS Commissioner John Koskinen. At the heart of the issue raised by Senator Hatch was his concern that many private museums should not receive 501(c)(3) tax-exempt status. Much of his reasoning seems to indicate a lack of understanding in regard to many of the smaller museums that dot the landscape of the United States. While not major tourist attractions, these museums do much to help preserve the history of a particular segment of our past. Many may not have wide appeal, but there frequently are a small cadre of dedicated adherents. I will, however, be the first to admit that 501(c)(3) tax-exempt status may be abused by an individual seeking to shield his hobby from any tax consequences while generating a revenue stream or other tax benefits. But don’t penalize all small museums due to a few bad apples.

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Form 1098-T Now Required When Taking Education Credits

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Not surprisingly, tax fraud is rampant in the area of education credits and the tuition deduction. According to the Treasury inspector General for Tax Administration (TIGTA) 3.6 million taxpayers claimed over $5.6 billion in potentially
erroneous education tax credits in 2012. Of over 10 million claims for the American Opportunity Tax Credit, 2.5 million were not supported by a Form 1098-T. As a result of this report, the IRS will audit more returns on which education credits are taken. Also of interest in the report is that in 2013 there were 2,300 claims for individuals under the age of 14 and 3,000 over age 80.

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